How does life insurance affect my estate?

Life insurance proceeds generally pass directly to named beneficiaries outside of probate, making it one of the most efficient ways to transfer wealth. However, if you own the policy at the time of death and your estate exceeds the federal exemption ($13.6 million in 2024), the death benefit may be included in your taxable estate. An Irrevocable Life Insurance Trust (ILIT) can hold the policy outside your estate to avoid this. For most people, life insurance passes tax-free and bypasses probate entirely.